Business Valuation : How to Value Private Limited Knowledge Based Companies

Abstract: Abstract Purpose The purpose of this study is to investigate the methods used for valuating private limited knowledge based companies and if a new approach is required, create or modify a foundation that will constitute as a base within the valuation process. Method This is a qualitative study using interviews to obtain primary data. People working in the valuation industry were contacted and we got eight respondents. The questions were designed to answer our purpose and research questions. Telephone interviews were chosen due to the fact that we believed the response would be higher.      Frame of References The theories used in this section is divided into three parts; the financial analysis including traditional valuating methods such as the Discounted Cash Flow model and relative valuating and multiples. The non-financial analysis focus on the underlying analysis consistent of structural- and intellectual capital and also value drivers that are creating value for the firm. In the end other theories concerning the analysis are presented, such as the risk-return trade-off, risk rating systems and analytical hierarchy process.             Empirical Findings In this section the presentations of the respondents’ answers and and Analysis a brief analysis related to each question. After this an extended analysis is presented focusing on the subject and our risk scheme and guidelines we created/modified. The extended analysis is connected to the respondents’ answers. The purpose of this section is to have a better understanding about the risk of transient intellectual capital and give recommendations how to handle it. Also, guidelines of how to weight different value driver are discussed. Conclusion We concluded that all valuations utilize more than one approach in order to estimate the most accurate value for the company. For knowledge based companies the biggest risk with a M&A transaction is the probability of diminishing the intellectual capital. We constructed a model that will manage this risk based on our interviews and established theories.